Austrian Moves Flight Operations To Tyrolean

Austrian Airlines is pushing through dramatic changes in its structure in a last attempt to return to profitability. The airline’s board of directors decided on Thursday that flight operations, including aircraft, pilots and cabin crew, will be transferred from the parent company to regional subsidiary Tyrolean.

The measure is intended to break the system of automatic pay increases and promotions that has led to yearly staff cost hikes of about 7%. It is part of a cost savings program that aims to reduce expenses by €223 million ($293 million) this year. The transfer itself will contribute about €43 million in spite of one-off costs related to contract termination. Pilots are entitled to refuse the transfer and will receive compensation of up to €500,000 if they chose to leave. Austrian CEO Jaan Albrecht says so far about 40 pilots have chosen to leave, but he refused to predict how many more would follow.

The move into the Tyrolean organization will be implemented on July 1. A scope clause agreement that limits Tyrolean flying to 110-seat aircraft expires at the end of June. To make up for the expected staff shortfall, Tyrolean pilots are being trained on AirbusA320s now and called back from part-time work. Surplus Boeing 737 crews also are being moved to the A320 fleet. Austrian is phasing out its 11 Boeing 737s and will replace them with seven A320s.

Pilots and cabin crew will not suffer any pay cuts in the change, but they will fly according to the more stringent Tyrolean work rules. New-entrant pilots are paid according to Tyrolean’s pay scale, which is an estimated 25% lower. Austrian says it benefits because pay is now frozen, and the automatic increases have been eliminated. Staff can also be used much more efficiently.

Austrian, taken over by Lufthansa in 2009, intended to break even in 2011, but posted a €62 million loss last year. Under the new leadership, Lufthansa is taking a much tougher stance toward its subsidiaries. It has sold BMI to International Airlines Group (IAG) and shut down Lufthansa Italia. CEO Christoph Franz launched the SCORE restructuring program that is expected to improve profitability by €1.5 billion in 2014.

Albrecht was hired late last year to push through the turnaround. Austrian operated without a CEO after Thierry Antinori stepped down days before he was supposed to start in early 2011. Industry observers say management issues have delayed the restructuring.

Austrian’s unions have announced strong opposition to the move into Tyrolean. They unilaterally terminated the unit’s collective bargaining agreement to make the transition more difficult. Austrian also is likely to be sued over the plans, but Chief Operating Officer Peter Malanik says the airline is well prepared and confident its view will prevail in court.